Amazon founder and CEO Jeff Bezos laughs as he talks to the media while touring the new Amazon Spheres during the grand opening at Amazon’s Seattle headquarters in Seattle, Washington, U.S., January 29, 2018.Reuters/Lindsey Wasson

  • Amazon’s ambitions in healthcare have become more apparent over the last year, leading to speculation about what the company might do if it got into the prescription drug business. 
  • Analysts at Bernstein carved out a clear path Amazon could take, with the help of the company’s new nonprofit joint health venture with JPMorgan and Berkshire Hathaway.
  • The company could start working directly with large, self-insured employers.  If Amazon went that route, it could hit certain businesses, including the pharmacy benefits manager Express Scripts, which works with these large employers. 

It’s still remains to be seen if Amazon will get into the prescription drug business, though there have been a lot of hints. That hasn’t stopped people from speculating what kind of impact they could have on the space, or even mapping out what their potential entry could look like. 

“We believe that disruption is coming for healthcare and Amazon will be an accelerant of this disruption,” Bernstein analyst Lance Wilkes wrote in a note Thursday. “We believe this is unusual, in that healthcare usually moves slowly, and investors have been rewarded for not being ahead of actual changes in healthcare. This time is different, we believe, because cost is now the most important consideration for payers (government and employers).”

The idea is that Amazon could come in and sell prescription drugs directly through its site, delivering them via mail and impacting retail pharmacies.

There are three ways Amazon could approach the prescription drug industry, as Bernstein sees it:

  • The company could purchase a pharmacy benefits manager, an organization responsible for negotiating lower prices for prescriptions. 
  • Amazon could partner with another healthcare organization to be the mail order portion of a health plan, like for example working with UnitedHealthcare’s OptumRx PBM division. 
  • And it could also go it alone and just create its own mail-order system and sells that to employers who can add it to their health benefits. 

In January, Amazon along with JPMorgan and Berkshire Hathaway, launched a new independent nonprofit venture aimed at lowering healthcare costs for their employees. There weren’t many details right off the bat, so it’s unclear the exact approach companies will opt for. They could team up to form a health insurance plan, or find other ways to negotiate for cut backs on healthcare spending. 

By banding these three self-insured employers together, Amazon’s roadmap into the prescription drug business might not have to rely on partners or acquisitions of pharmacy benefits managers. Instead, Amazon could have the leverage to convince employers, starting with these three organizations, to buy into Amazon’s mail service. 

That large employer strategy could put Express Scripts, one of the largest standalone PBMs in the US, at even more risk than previously anticipated, Wilkes told Business Insider. If employers decide to build their own transparent PBM, they might rely less on Express Scripts’ services. National account employers make up about 21% of Express Scripts’ gross margin, according to Bernstein. 

PBMs tend to make about one-third of their gross margin from rebates paid out for prescriptions by drugmakers, one-third from transactions happening at retail pharmacies, and one-third from their mail and specialty pharmacy services. 

Should online prescriptions — particularly for recurring prescriptions — pick up market share from retail pharmacies and mail-order services start to favor Amazon, Bernstein anticipates that this threatens about 55% of Express Scripts’ gross margin.

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